ACTUAL AUTHORITY


Express Authority: Authority declared in clear, direct, and
definite terms, orally or in writing.

Equal Dignity Rule: If a contract being executed by an
agent on the principal’s behalf is written, most states
require that the agent’s authority must also be evidenced
by a writing; otherwise, the contract executed by the
agent is voidable at the principal’s option.

The equal dignity rule does not apply when the agent
acts in the principal’s presence or when the agent’s act
is merely perfunctory.

Power of Attorney: A written document, usually
notarized, authorizing an agent to act for a principal.
Implied Authority: Authority that is

conferred by custom,
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inferred from the position the agent occupies, or

inferred as being reasonably necessary to carry out
express authority.
Ch. 32: Agency: Liability to Third Parties and Termination - No. 1
West’s Business Law (9th ed.)
APPARENT AUTHORITY

Apparent Authority: Authority that arises when a principal,
by either words or actions, causes a third party to believe that
an agent has authority to act, even though the agent has no
express or implied authority to act with regard to the
particular matter at hand.

If the third party changes his or her position in reliance
on the principal’s representations regarding the
agent’s authority, the principal may be estopped from
denying that the agent had authority to act.

Apparent authority may arise due to


the principal’s course of conduct over time, or
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the agent’s possession and apparent ownership
or control of the principal’s property.
Emergency Powers: When an unforeseen situation
demands action to protect or preserve the property and
rights of the principal, but the agent is unable to contact
the principal, the agent has emergency authority to act
on the principal’s behalf.
Ch. 32: Agency: Liability to Third Parties and Termination - No. 2
West’s Business Law (9th ed.)
RATIFICATION

Ratification: A principal’s express or implied affirmation of
a previously unauthorized contract made by, or other act of, a
purported agent. In summary:
(1) the agent must have acted on behalf of the principal
who subsequently ratified the action;
(2) the principal must affirm the agent’s act in its entirety;
(3) the principal must affirm before the third party
withdraws from the transaction;
(4) the principal must have the legal capacity to affirm the
transaction both
(a) at the time the agent acts, and
(b) at the time the principal ratifies; and
(5) the principal must know all material facts.

If the principal ratifies without full knowledge, she
can rescind her ratification, but must reimburse the
third party for any costs incurred as a result of
reasonably relying on the apparent contract.
Ch. 32: Agency: Liability to Third Parties and Termination - No. 3
West’s Business Law (9th ed.)
AUTHORIZED CONTRACTS

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A disclosed or partially disclosed principal is liable to a third
party for a contract made by an agent who is acting within the
scope of his or her authority.

Disclosed Principal: A principal whose identity is
known to the third party at the time the agent makes a
contract for the principal with the third party.

Partially Disclosed Principal: A principal whose
identity is not known to the third party, but the third
party does know that the agent is representing some
principal at the time the agent makes a contract with the
third party. In many states, the agent is also liable on a
contract with a partially disclosed principal.
Undisclosed Principal: When neither the fact of her agency
nor the identity of the principal is disclosed by an agent to
the third party at the time a contract is made, the agent is
presumed to be acting on her own behalf, and will be liable as
a party to the contract.

If the agent was authorized to act on behalf of the
undisclosed principal, then the principal will generally
also be liable to the third party and will owe the agent
indemnity.
Ch. 32: Agency: Liability to Third Parties and Termination - No. 4
West’s Business Law (9th ed.)
UNAUTHORIZED CONTRACTS

If an unauthorized agent contracts with a third party, the
principal cannot be held liable on the contract, regardless of
whether the principal was disclosed, partially disclosed, or
undisclosed. Rather, the agent will be solely liable.

However, if the third party knows or should know at the time
of the contract that the agent lacks authority to contract on
behalf of the principal, the agent will not be liable to the third
party.
Ch. 32: Agency: Liability to Third Parties and Termination - No. 5
West’s Business Law (9th ed.)
E-AGENTS

E-Agent: A semiautonomous computer program capable of
executing specific tasks, including database searches and
retrievals.

The Uniform Electronic Transactions Act (“UETA”)
provides, in part, that
(1) e-agents may enter into binding agreements on
behalf of their principals; and
(2) if the e-agent does not provide the third party with
an opportunity to prevent errors at the time of the
transaction, the third party may avoid the
transaction without liability.

The Uniform Computer Information Transactions
Act (“UCITA”) provides that any individual or
company using an e-agent is bound by the e-agent’s
actions, even if the individual or company was unaware
of or did not review the e-agent’s operations or the
results of the e-agent’s operations.

However, UCITA also empowers courts to “grant
appropriate relief if the operations resulted from
fraud, electronic mistake, or the like.”
Ch. 32: Agency: Liability to Third Parties and Termination - No. 6
West’s Business Law (9th ed.)
LIABILITY FOR AGENT’S TORTS

An agent is liable for her own torts. In addition, a principal
may be liable for its agent’s torts if the agent’s tort resulted
from:
(1) the principal’s own tortious conduct,
(2) a tortious act authorized by the principal, or
(3) the agent’s unauthorized tort committed within the scope
of the agency.

Subagents: A principal is liable for the acts of subagents
hired by an agent
(1) to perform simple, definite duties,
(2) when hiring subagents is customary, or
(3) due to an unforeseen emergency.
Ch. 32: Agency: Liability to Third Parties and Termination - No. 7
West’s Business Law (9th ed.)
RESPONDEAT SUPERIOR - PT. I

Respondeat Superior: A principal is liable, along with the
agent, for any tort committed by the agent while acting within
the scope of their agency.

To determine whether a tort was within the scope of the
agency, courts look at the following:
(1) whether the principal authorized the act,
(2) the time, place, and purpose of the act,
(3) whether the act was one commonly performed by
agents on behalf of their principals,
(4) whether the principal’s interest was advanced,
(5) whether the agent’s interests were involved,
(6) whether the principal furnished the means or
instrumentality by which the injury was inflicted,
(7) whether the principal had reason to know, and
(8) whether the act involved a serious crime.
Ch. 32: Agency: Liability to Third Parties and Termination - No. 8
West’s Business Law (9th ed.)
RESPONDEAT SUPERIOR - PT. II

“Frolics”: A principal is not liable for the acts of an
agent who substantially departs from the principal’s
business.

Borrowed Servants: A principal may be liable for the
acts of an agent “lent” to another if the principal retained
the primary right to control the agent’s activities.

Dangerous Conditions: A principal is charged with
knowledge of any dangerous conditions discovered by
an agent and pertinent to the agency regardless of
whether the agent actually informs the principal of the
condition.

Intentional Torts: Principals are liable only for those
intentional torts that are committed within the course
and scope of the agent’s actions on behalf of the
principal.

Crimes: As a general rule, a principal is not liable for an
agent’s crime – even if committed while otherwise
acting in the course and scope of the agency – unless the
agent committed the crime at the principal’s direction, or
with the principal’s knowledge and consent.
Ch. 32: Agency: Liability to Third Parties and Termination - No. 9
West’s Business Law (9th ed.)
LIABILITY FOR AN INDEPENDENT
CONTRACTOR’S TORTS

As a general rule, an employer who has no legal power to
control the details of the independent contractor’s
performance is not liable for any torts committed by the
independent contractor, even if committed while performing
the contract.

Exception: Unusually Hazardous Activities – An
employer is strictly liable for injuries caused by those
performing unusually hazardous activities (e.g., blasting,
using poison) on the employer’s behalf, regardless of
whether the person causing the injury is an employee or
an independent contractor.
Ch. 32: Agency: Liability to Third Parties and Termination - No. 10
West’s Business Law (9th ed.)
TERMINATION BY THE PARTIES

An agency may be terminated by
(1) lapse of time,
(2) accomplishing the particular purpose for agency,
(3) the occurrence of a specific event,
(4) mutual agreement of the agent and principal, or
(5) renunciation (by the agent) or revocation (by the
principal) of the agent’s authority.

Notice of Termination: If an agency terminates by any of the
above, the principal must give notice of that fact to (i) any
third party who knows of the agency and (ii) the agent.

No particular form of notification is required, and the
principal’s notice to the agent (but not to third parties
with knowledge) may be either constructive or actual.

Exception: If the agent derives her authority from a
written agreement, the principal must revoke the
agency in writing and show the written revocation to all
third parties who saw the written agency agreement.
Ch. 32: Agency: Liability to Third Parties and Termination - No. 11
West’s Business Law (9th ed.)
TERMINATION BY OPERATION OF LAW

An agency may also terminate as a matter of law due to
(1) death or incompetence of the agent or principal,
(2) impossibility of performance,
(3) materially changed circumstances,
(4) bankruptcy of the principal or agent, or
(5) the outbreak of war between the principal’s country and
the agent’s country.
Ch. 32: Agency: Liability to Third Parties and Termination - No. 12
West’s Business Law (9th ed.)